Tax Evasion Vs. Tax Avoidance

As all of us know, taxes are one of the unavoidable facts of life. So what happens when they’re not paid? You might have heard the terms “tax evasion” and “tax avoidance”. Despite sounding similar, these terms mean two completely different things, and can result in very different outcomes.

Tax Evasion

According to the IRS, the definition of tax evasion is “the failure to pay or deliberate underpayment of taxes”. This might look like failing to report some or all of your income to avoid income taxes. This underreporting is sometimes due to people doing illegal activities, like gambling or stealing goods in order to hide the activities from the government. Other ways people evade taxes are working jobs or hiring people “under the table” and not reporting tips from babysitting, garage sales, tutoring, yard work and other commonly unreported activities.

Consequences of Tax Evasion

The consequences of tax evasion can vary depending on the amount of the underpaid taxes. Penalties can vary from financial penalties to a year or more in jail for offenses. The IRS will require any back taxes to be paid, and you might even face a lien on your home, car or other large assets until back taxes are paid.

Tax Avoidance

As opposed to tax evasion, tax avoidance is perfectly legal. The definition of tax avoidance is “an action taken to lessen liability and maximize after-tax income. The IRS allows taxpayers to make all kinds of deductions to their taxes. Some people may be eligible for deductions based on interest they pay on mortgages, and others qualify for child care tax credits. Other examples of activities that can result in tax deductions are:

  • Donating to charity
  • Paying for college expenses
  • Purchasing equipment for your business
  • Paying medical expenses
  • Installing solar energy systems in your home

Even though there are countless deductions available to lessen the burden of taxes, you must prove you are eligible, or be able to prove you are eligible to receive them. Tax credits and deductions can look a bit different for businesses as well. To learn more about business tax deductions, take a look at the Credits and Deductions For Businesses page on the IRS website.

Key Differences in Evasion Vs Avoidance

The main difference between tax evasion and tax avoidance is that evasion is an illegal activity meant to deliberately dodge tax expenses, and avoidance is the highly encouraged, legal method for reducing the amount of taxes you pay. In many ways, tax avoidance is the result of good financial planning and accurate reporting practices. There are many ways you could practice tax avoidance, including researching different credits and deductions you’re eligible for, or taking steps to become eligible by making donations to charities and keeping accurate and complete business records to report your expenses and incomes properly.

Importance Of Understanding Taxes

Understanding the laws and regulations of taxes can benefit you by avoiding consequences for unpaid or improperly handled taxes, and often saves you a lot of money as well. For example, if you don’t understand tax incentives or how to claim certain things when filing taxes, you might be missing out on hundreds, if not thousands of dollars of savings or kickbacks. In this way, understanding taxes is an essential skill in order to advocate for yourself and position your business for financial success.

How To Learn More About Taxes

With the right tools and resources, you’ll be savvy with your business taxes in no time. Contact us today to speak to our knowledgeable advisors and learn more about how to do your business tax planning, preparation and more.

Clarity not complexity.

At Clear View Business Solutions, we know you want your business to prosper without having to worry about whether you are paying more in taxes than you should or whether your business is set up correctly. The problem is it's hard to find a trusted advisor who can translate financial jargon to layman's terms and who can actually help you plan for better results.

We believe it doesn't have to be this way! No business owner should settle for working with a CPA firm that falls short of understanding what you want to achieve and how to help you get there.

Clear View Business Solutions is a Tucson-area small business financial advisory, tax services, accounting and bookkeeping firm that can help you ensure your business and financial success.
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Clarity not complexity.

At Clear View Business Solutions, we know you want your business to prosper without having to worry about whether you are paying more in taxes than you should or whether your business is set up correctly. The problem is it's hard to find a trusted advisor who can translate financial jargon to layman's terms and who can actually help you plan for better results.

We believe it doesn't have to be this way! No business owner should settle for working with a CPA firm that falls short of understanding what you want to achieve and how to help you get there. With over 20 years of experience serving hundreds of business owners like you, our team of experts combines financial expertise and proactive communication with our drive to help each client achieve results and have fun along the way.

Here's how we do it:

Discover: We start with a consultation to understand your specific goals, what's holding you back, and what success looks like for you.
Strategize & Optimize: Together, we design a customized strategy that empowers you to progress toward your goals, and we optimize our communication as partners.
Thrive: You enjoy a clear view of your business and your financial prosperity.


Schedule a consultation today, and take the first step toward being able to focus on your core business again without wondering if your numbers are right- or what they mean to your business.

In the meantime, download, "The Business Owner's Essential Guide to Tax Deductions" and make sure you aren't leaving money on the table.